Turkey Doing Business Guide - Bilgener Istanbul Sworn-in CPA Inc - Kallermann Revision
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Doing Business Guide
Turkey
2nd Edition
Bilgener Istanbul Sworn-in CPA Inc
www.bilgeneristanbul.com
www.doingbusinessinturkey.com
About This Booklet This booklet has been produced by Bilgener Certified Public Accountancy Ltd to provide an introduction to foreign investors on the various aspects of doing business in Turkey. Its main purpose is to provide a broad overview of the various things that should be taken into account by organisations considering setting up business in Turkey. The information provided is not exhaustive and – as underlying legislation and regulations are subject to frequent changes – we recommend that anyone considering doing business in Turkey or looking to the area as an opportunity for expansion should seek professional advice before making any business or investment decision. www.bilgeneristanbul.com www.doingbusinessinturkey.com Bilgener Istanbul Sworn-in CPA Inc Mahir İz Caddesi, No: 28/9, Altunizade, Istanbul, 34662, Turkey T: +90 216 651 4 651 F: +90 216 651 4 451 E: info@bilgeneristanbul.com While every effort has been made to ensure the accuracy of the information contained in this booklet, no responsibility is accepted for its accuracy or completeness. Bilgener Istanbul Sworn-in CPA Inc
Contents
Facts About Turkey.................................................................................................................................................... 2
Turkish Economy........................................................................................................................................................ 3
Operating Structures................................................................................................................................................ 4
Establishment Procedure and Registration Requirements........................................................................8
Mergers and Acquisitions.....................................................................................................................................10
Employment Obligations......................................................................................................................................12
Statutory Requirements for Companies.........................................................................................................16
Taxation.......................................................................................................................................................................19
Government Incentives.........................................................................................................................................28
Living in Turkey.........................................................................................................................................................39
www.bilgeneristanbul.com
Facts About Turkey
Turkey is situated in Anatolia and the Balkans, bordering the Black Sea between Bulgaria and
Georgia, and bordering the Aegean and Mediterranean between Greece and Syria.
Turkey extends more than 1,600 km from west to east, but less than 800 km from north
to south. The total land area is about 783,562 km2, of which 756,816 km2 are in Asia and
23,764 km2 in Europe.
Anatolia is a large, roughly rectangular peninsula that bridges Europe and Asia. The Anatolian
part of Turkey accounts for 97% of the country’s area. It is also known as Asia Minor,
Asiatic Turkey or the Anatolian Plateau. The European portion of Turkey, known as Thrace,
encompasses 3% of the total area but is home to more than 10% of the total population.
Thrace is separated from the Asian portion of Turkey by the Bosphorus, the Sea of Marmara
and the Dardanelles.
The climate of coastal regions shows features of transition between a Mediterranean and
Black Sea climate. Summers tend to be hot and dry, except on the Black Sea coast. While
spring and autumn are warm and temperate, winters are cold – although snow is unusual,
except in more inland areas.
At the end of 2014, the population of Turkey was estimated to be just over 75.9 million, with
a roughly equal gender distribution and an annual population growth rate of 1.2%. People of
working age (15–64 years) constitute almost 70% of the population.
The territory of Turkey is subdivided into 81 provinces for administrative purposes. The
capital city of Turkey is Ankara, but Istanbul is the largest city, with a population of almost
14.4 million at the beginning of 2015.
The official language is Turkish, and the currency is the Turkish Lira (TRY).
The Republic of Turkey was established in 1923. Turkey is a unitary parliamentary republic
in which power is divided between the legislative, the executive and judiciary. Turkey has
enjoyed multi-party politics since 1946. Turkish parliament is the sole legislative body,
with 550 members elected for each 4-year term. Executive power is exercised by the prime
minister and the Council of Ministers, in accordance with the constitution and the law. The
president is elected by public for a 5-years term. The prime minister, appointed by the
president, nominates the other members of the cabinet, subject to approval by the president
and a parliamentary vote of confidence.
The judiciary operates independently on behalf of the state. The legal system is largely based
on continental European models.
2 Bilgener Istanbul Sworn-in CPA IncTurkish Economy
The Turkish economy has shown remarkable performance, with steady growth over the years
to become one of the world’s most dynamically developing markets. The country already
ranks 8th among EU countries, and according to GDP figures was the world’s 18th largest
economy in 2014.
Turkey’s largely free-market economy is increasingly driven by its industry and service
sectors, but a significant number of people still work in agriculture. The private sector
is expanding rapidly; an improving regulatory environment and open-market policies
support global trade and investment to sustain overall competitiveness. The banking
sector has weathered financial turmoil relatively well with little government intervention.
A privatisation programme has reduced state involvement in basic industry, banking,
transport, and communication sectors, and middle-class entrepreneurs continue to add
dynamism to the economy by expanding production beyond the traditional textiles and
clothing sectors. The automotive, construction, and electronics industries are rising in
importance and have surpassed textiles within Turkey’s export mix.
www.bilgeneristanbul.com 3Operating Structures
As a result of Turkish foreign investment legislation’s principles of non-discrimination and
equal treatment, international investors enjoy the same status as local ones. A company can
be established with 100% foreign capital without any capital or management contribution
from Turkish participants. The structuring and organisation of companies are subject to
regulations set forth in the new Turkish Commercial Code, Law No. 6102 enacted in 2011.
All corporate forms are open to foreign investment; joint stock or limited liability companies
are generally preferred by international inventors, along with branches and liaison offices.
Joint stock company
The company’s stock capital is divided into shares and the liability of the shareholders is
limited to the subscribed capital and paid by the shareholder. A joint stock company can be
established for any economic purpose that is not prohibited by law.
There must be at least one shareholder (a real person or a legal entity) and a minimum
capital of TRY 50,000 is mandatory. The initial capital in non-public joint stock companies
with a registered capital system cannot be less than TRY 100,000; value per share in
both cases cannot be less than TRY 0.01. At least 25% of the nominal value of the shares
subscribed in cash must be paid before registration with the Trade Registry.
Articles of association should include the trade name, list of shareholders, address and
business purpose, the amount of capital and the amount subscribed by each shareholder,
the amount of share capital, the nominal value of each share, the mode and terms of
payments, the mode of convening the general meetings, dates and times of meetings, and
conditions concerning voting. Articles of association must be signed by the shareholders,
approved by a notary.
A joint stock company is governed by a board of directors, who have legal authority to
represent the company. This board can be constituted by one or more member, and board
members no longer need to be shareholders. A legal entity can also be a board member, but
must be represented by a real person. There are no restrictions on nationality or residence of
board members.
Annual meetings must be held within 3 months of the end of the financial year and the
board of directors calls the meeting. The quorum for an ordinary annual general meeting is
25% of shareholders, unless otherwise stated in the articles of association.
Joint stock companies with more than 250 shareholders, or who issue stocks and bonds that
are quoted in the stock exchange, are subject to the provisions of the capital market.
Limited liability company
A limited liability company is established with at least one shareholder (a real person or a
legal entity); the liability of shareholders is limited to the subscribed capital and paid by the
4 Bilgener Istanbul Sworn-in CPA Incshareholder. The number of shareholders may not exceed 50. A limited liability company can
be established for any economic purpose that is not prohibited by law.
A minimum capital of TRY 10,000 is mandatory and value per share cannot be less than TRY
25. All of the capital should be committed unconditionally by shareholders and at least 25%
of the nominal value of the shares subscribed in cash must be paid before registration with
the Trade Registry.
Articles of association should include the trade name, list of shareholders, address and
business purpose of the firm, the amount of capital and the amount subscribed by each
shareholder. Articles of association signed by the shareholders, approved by a notary.
A limited liability company is governed by managers. At least one member of the partners
must have the right to legally represent the company. The legal entity can be a manager,
but must be represented by a real person, who must be registered. The responsibilities
of manager start with legal establishment of the company. There are no restrictions on
nationality or residence of managers.
The annual partners’ meeting must be held within 3 months of the end of the financial year.
A limited liability company cannot be opened to public. Comparisons with a joint stock
company are shown in Table 1.
Branch
A foreign company is required to obtain permission from the Ministry of Commerce and
Industry to establish a branch in Turkey. A branch of a foreign entity is not a separate entity.
Therefore, a branch has the same articles of association as its parent company, indicating the
scope of activity of the Turkish branch.
Every branch should use the name of the parent company and include the term ‘branch’. The
branch is represented by a representative or branch manager with full authority, who resides
in Turkey either as a Turkish citizen or as a foreigner with the appropriate work and residency
permits.
There is no minimum capital requirement for the establishment of a branch. While it must
be funded by head office and is governed by the parent company’s internal regulations, a
branch can act with some autonomy in its external relations.
A branch is subject to corporate tax only for income generated in Turkey due to limited
liability status. Furthermore, withholding tax is levied on after-tax branch profits remitted to
headquarters.
Liaison office
Liaison offices are not allowed to carry on any commercial activities in Turkey. Their activities
are limited to non-commercial activities, such as collecting information about investment
opportunities in Turkey; preparing feasibility and market research studies within the Turkish
www.bilgeneristanbul.com 5market; gathering information on the Turkish economy; and providing information about the
parent company and its products.
Permission to establish a liaison office is required from the Foreign Investment Department
under the Turkish Prime Ministry. Permits are granted for a period of up to 3 years, at the end
of which extension applications can be made.
A liaison office is not subject to income tax because it is not permitted to generate any
income from its activities. All the expenses generated by the liaison office must be paid
abroad with foreign currency.
Table 1. Comparison of limited liability company and joint stock company.
Limited liability company Joint stock company
Liability of Limited by share capital, except Limited by share capital
shareholders for tax liabilities
Dividends Allowed Allowed
Shareholders Minimum 1 shareholder Minimum 1 shareholder
Real person or legal entity Real person or legal entity
Maximum 50 shareholders
Management Director(s) Board of minimum 1 member
Foreigners allowed to be director Foreigners allowed
Equity Minimum total capital Minimum total capital requirement
requirement = TRY 10,000 = TRY 50,000
Minimum TRY 25 per partner Registered capital system
regardless of tax residency status Capital cannot be < TRY 100,000
≥25% of nominal value of shares Minimum TRY 0.01 per shareholder
subscribed in cash must be paid regardless of tax residency status
before registration ≥25% of nominal value of shares
subscribed in cash must be paid
before registration
Control Partners assembly meeting General assembly of shareholders
meeting
Legal Independent – considered as a Independent – considered as a
Turkish company Turkish company
Taxable status Liability to taxation on worldwide Liability to taxation on worldwide
income. income.
Tax resident Tax resident
Corporate Mainstream corporate income tax Mainstream corporate income tax
income tax at 20% at 20%
6 Bilgener Istanbul Sworn-in CPA IncDividend Not applicable unless profits are Not applicable unless profits are
withholding tax distributed to individual and distributed to individual and
foreign corporate shareholders foreign corporate shareholders
Going public Not allowed Allowed
Transfer of Allowed Allowed
shares inside/
outside Turkey
Availability of Yes Yes
incentives
Revaluation of Inflation accounting Inflation accounting
fixed assets
Inflation Applicable on non-monetary Applicable on non-monetary items
accounting items in the case of certain in the case of certain conditions
conditions being realised being realised simultaneously
simultaneously
Billing Billing in foreign currency to Billing in foreign currency to
Turkish entities is not allowed Turkish entities is not allowed
Indexation of TRY amount on Indexation of TRY amount on
invoice to foreign currency is invoice to foreign currency is
possible possible
Foreign Allowed Allowed
currency usage
Deposit account Allowed Allowed
in Turkey/
abroad
www.bilgeneristanbul.com 7Establishment Procedure and
Registration Requirements
Establishment procedure
The establishment procedure is the same for setting up all forms of entities, but requirements
vary according to settlement. From 2013 onwards, the company establishment procedure
will be followed up via a new system called MERSIS – the steps for this are outlined below:
• Register online with the MERSIS system
• Check the appropriateness of the chosen company name and the title to use
• raw up articles of association in accordance with MERSIS requirements and obtain a
D
tracking number from the system
• isit a the public notary with the MERSIS tracking number, to have the articles of
V
association signed by shareholders and witnessed
• Prepare founders’ declaration, signed by founders
• ake the capital contribution payment, if capital is contributed by shareholders at
M
establishment
• Pay fee for protection of competition (0.04% of capital commitment)
• pply to Trade Registry Office with MERSIS tracking number, along with all other relevant
A
documents and statements
• I f application is approved by Trade Registry Office, the company becomes a legal entity
following its registration
• repare the signature declaration of the authorised persons under the company name
P
and notarised by a public notary
• Get the legal books certified by a public notary
• repare invoices under the conditions required by law and print them by contracted
P
printers.
Registration requirements
After ‘legal entity’ status is received, the company should:
• Register with the district tax office
• Register with the provincial social security office
• Obtain permits from municipal authorities to commence operations
Entities engaged in trade must also register with the Chamber of Commerce, and those
engaged in production must register with the Chamber of Industry.
8 Bilgener Istanbul Sworn-in CPA IncRegistration with the tax office
Taxpayers are required to notify the tax office in the case of starting a legal entity, as well as if
moving address, change of job, changing business or closing down.
The local tax office must be notified of the start of a legal entity within 10 days of its
establishment. This is done by the commercial registry office, which sends a copy of the
application documents to the relevant tax office. However, to ensure compliance, it may be
wise for a company representative to advise the local tax office using a work commencement
notification form.
In the case of changing or closing down a legal entity, the person authorised to represent the
company must apply to the tax office within 1 month of the date when the change/closure
takes place.
Registration with social security
The employer is required to provide a business declaration, prepared according to the
template provided, to Social Security before any employees start work. This can also be
done via the commercial registry office, which must notify Social Security within 10 days
of receiving information about a company’s establishment, mergers, relocation, transfer or
other changes.
Permits from municipal authorities
According to municipal revenues law, the workplace cannot be opened and operated
without first obtaining a permit to commence operations. Municipalities are authorised
to grant operating licence and work permits to businesses within the boundaries of the
municipality and neighbouring areas. Companies should apply to the local municipality for
an operating licence and work permits, which will be issued once any necessary inspections
have been carried out.
If the place of business is located outside the municipal boundaries, then the licence and
permits should be sought from the governor and/or governorate.
www.bilgeneristanbul.com 9Mergers and Acquisitions
Mergers
The absorption of one or more companies into another company where the transferred
companies are deemed to be dissolved without liquidation is defined as a merger in Turkish
Commercial Code. According to the Code companies can merge in two ways:
i. When a company takes over another company, i.e. merge in a form of takeover
ii. hen companies come together to form a new company i.e. merge in a form of a
W
new organisation.
Following a merger, the assets of the transferor company will be inherited either by the
transferee company or by a new organisation, depending on the merger type.
Takeover merger
When both the transferor and transferee companies are tax residents and the transferee
company incorporates all assets and liabilities of the transferor company into its balance
sheet on a carryover basis, this type of takeover is recognised as a tax-free merger by Turkish
corporate tax law.
The transferor company is subject to the usual taxation rules for profits up to date of the
merger. Any profit gained from the merger itself is not subject to tax.
With the merger, the transferee company undertakes all known and unknown tax liabilities
of the transferor company.
The transferor company’s tax losses can be transferred to the transferee company, if the
transferee company continues the business activities if the transferor company for at least
5 years following the date of the merger. However, tax losses that can be transferred to the
transferee company are limited to the shareholders’ equity of the transferor company as of
the date of the merger.
A tax-free merger does not affect the tax liabilities of the transferee company.
New company merger
The assets of the transferor companies are deemed to have been transferred at market value
to the new company, which leads to taxable capital gains. The new company is entitled to
book the assets at their market value as their tax basis for depreciation purposes.
The tax losses of the transferor companies cannot be transferred to the new company; but
transferor companies can offset their existing tax losses against the capital gains arising from
the transfer of assets through merger.
10 Bilgener Istanbul Sworn-in CPA IncAcquisitions
A foreign company can acquire a Turkish company by purchasing its assets or shares.
Acquisition of assets can only be done through a Turkish company or a Turkish branch of
a foreign company. Transfer of the assets should be conducted at the fair value, and the
transfer between related parties should be documented according to transfer pricing
requirements. Assets can be depreciated by the purchased company. The sale of assets of
an entity is subject to corporate tax on the gains realised from the sale of the assets. Losses
arising from the sale of assets can be either deducted or carried forward. Transfer of the
assets via asset purchase agreement is subject to value added tax (VAT). An asset purchase
agreement is subject to stamp tax at 0.825% over the contact value.
An acquisition of the shares by the foreign company imposes no immediate income tax,
but can be subject to tax if the shares are sold onto another company or an individual. If
the shares of a company are held by an individual shareholder for more than 2 years, the
capital gains is exempt from income tax and there is no VAT payable. If the shares are held by
an individual shareholder for less than 2 years, the capital gains is subject to income tax at
progressive rates of up to 35%; there is no VAT payable for joint stock companies, but there is
for limited liability companies.
If the shares are held by a corporate shareholder, the capital gains will be booked as taxable
income; the net income is subject to corporation tax at 20%, and no VAT is payable. Losses
are available to offset income from the company’s other activities.
The share transfer agreement is subject to stamp tax at 0.825% over the sale and purchase
price.
Regarding gains realised from the sale of real estate property, 75% is exempted from
corporate taxation if the real estate has been held for 2 years or more. The capital gains
are retained in a special reserve account for a minimum of 5 years. Transfer of real estate
property is exempt from VAT.
Taxation of share transfers is among the most complex issues in Turkish legislation. Specific
cases must be assessed individually, taking account the following:
• hare type: Shares to be transferred could be limited liability company shares, joint stock
S
company shares, or a published share certificate representing joint stock company shares
• olding period: Taxation varies depending on how long the shares have been held.
H
Double taxation treaties specify holding period limits that affect taxation for non-
residents.
www.bilgeneristanbul.com 11Employment Obligations
Turkish Labour Code, Act No. 4857, enacted in 2003, regulates the working conditions
and work-related rights and obligations of employers and employees working under an
employment contract. The Code forbids discrimination, including any that is based on
language, race, sex, political opinion, philosophical belief or religion.
Employment contract
An employment contract is an agreement whereby one party (the employee) undertakes to
perform work in subordination to the other party (the employer) in return for remuneration.
The contract is not subject to any special form, unless specified by the Act. A written form
is required for employment contracts, with a fixed duration of at least 1 year. Such written
documents are exempt from stamp tax and other fees.
The parties are free to draw up the employment contract in a manner commensurate to their
needs, without prejudice to the limitations brought up by legislation.
Employment contracts can be made for a definite (fixed-term) or indefinite (open-ended)
period. In terms of the manner of working, these contracts may be concluded on a full-time
or part-time basis, or with a trial (probation) period, or in various other forms.
If the parties have agreed to include a trial clause in the employment contract, the duration
of the trial term cannot exceed 2 months, during which both parties are free to terminate
the contract without observing the notice period/paying compensation. The employee’s
entitlement to wages and other rights for the days worked is reserved.
Termination of employment contract
Before terminating a continual employment contract made for an indefinite period, notice
to the other party must be served by the terminating party. Table 2 shows the minimum
duration of notification periods, which may be increased by contracts between the parties.
Table 2. Notification periods for termination of employment contracts.
Duration of service Duration of notification period
0–6 months 2 weeks
6–18 months 4 weeks
18–36 months 6 weeks
>36 months 8 weeks
The party who does not abide by the rule to serve notice must pay compensation to cover
the wages corresponding to the appropriate term of notice. The employer may terminate an
employment contract by paying in advance the wages corresponding to the term of notice.
An employer who terminates the contract of an employee engaged for an indefinite period,
who is employed in an entity with ≥30 workers and who meets a minimum seniority of
12 Bilgener Istanbul Sworn-in CPA Inc6 months, must have a valid reason for such termination, connected with the capacity or
conduct of the employee or based on the operational requirements of the entity or service.
The notice of termination must be served in writing, clearly specifying the reason(s). The
worker must be given an opportunity to defend against allegations of poor conduct or
performance. However, in cases of employee misconduct or malicious/immoral behaviour,
the employer has the right to break the employment contract.
Any employee who considers that their employment contract was terminated without valid
reason can lodge an appeal with the Labour Court within 1 month of receiving the notice
of termination. The court must apply fast-hearing procedures and conclude the case within
2 months. If the decision is appealed, the Court of Cassation must issue its definitive verdict
within 1 month.
If the court or arbitrator concludes that the termination is unjustified because no valid
reason has been given or the alleged reason is invalid, the employer must re-engage the
employee within 1 month or be liable to pay 4–8 months’ wages by way of compensation
(the appropriate amount to be paid can be designated in the court’s verdict).
The employee can be paid up to 4 months’ wages and other entitlements until the
finalisation of the court’s verdict. If advance notice pay or severance pay has already been
paid to the reinstated employee, this is deducted from the compensation. If term of notice
has not been given and advance notice pay has not been paid, wages corresponding to the
term of notice can also be paid to the employee not re-engaged in work.
For re-engagement in work, the employee must make an application to the employer within
10 working days of the date of the final court verdict. If the employee does not apply within
the given period of time, the termination will be deemed valid, in which case the employer
will be held liable only for the legal consequences of that termination.
Wages
As a rule, wages can be paid in Turkish Lira at the business entity or can be deposited into a
specially opened bank account. If the wage has been decided in terms of a foreign currency,
it can be paid in Turkish Lira according to the exchange rate on the date of payment.
Wages are paid on a monthly basis at the latest; this can be reduced to 1 week by
employment contract or by collective agreement. Upon expiration of the contract the
employee’s wages, together with any other benefit claims based on the employment
contract and law, must be paid in full.
Wage payments made at the business entity or through a bank must be accompanied by
a signed/stamped slip clearly indicating the date of payment, the pay period, the wage
account, all supplements to basic wages (e.g. overtime earnings, payments for weekly rest
days and national or general holidays) and all deductions (e.g. taxes, insurance contributions,
reimbursement of advance payments, payments for alimony and sequestrated deductions).
With the object of regulating the economic and social conditions of all employees working
under an employment contract, either covered or uncovered by Turkish Labour Code, the
www.bilgeneristanbul.com 13minimum wage will be determined at least every 2 years by the Ministry of Labour and Social
Security through the Minimum Wage Fixing Board.
Working hours and overtime
The typical working week is ≤45 hours, divided equally across the days of the week unless
otherwise agreed. Any working hours that exceed this limit count as overtime, which must
be justified by national interest, the nature of the operation or the need to increase output.
Overtime wages are remunerated at 1.5 times the normal hourly rate – or the employee
can choose to take the equivalent time off in lieu (1.5 hours per extra hour worked) within
6 months.
If the contract specifies a working week ofForeigners making social security contributions in their home country do not have to
pay Turkish social security premiums if there is a reciprocal agreement between the two
countries.
Unemployment insurance premium payments
Employees, employers and the state are required to make a compulsory contribution to the
Unemployment Insurance Plan at the rates of 1%, 2% and 1%, respectively, of the employee’s
gross salary. Like the social security premium payments, unemployment insurance premiums
must be paid by the employer monthly and can be deducted from taxable income. On the
other hand, an employee’s contributions are deductible from their income tax base.
A foreign individual who remains covered under the compulsory social security system of
their home country that has a social security agreement in effect with Turkey is not liable
for insurance payments to the Turkish social security. Proof of foreign cover must be filed
with the local social security office. If the employee is not subject to a foreign social security,
full contributions will generally be imposed. Unemployment insurance premiums are
declared and paid to the Social Security Institution together with social security premium
contributions.
www.bilgeneristanbul.com 15Statutory Requirements for Companies
Accounting and auditing practices must be evaluated within the framework of the New
Turkish Commercial Code (TCC). To ensure more effective auditing and public oversight
system, the Public Oversight Accounting and Auditing Standards Authority (KGK) was
established in accordance with Public Oversight Accounting and Auditing Standards
Authority’s Organisation and Responsibilities Decree Law No. 660 of 2 November 2011.
Members of the management board were appointed on 14 December 2011 and the
Authority started its operations as of 22 December 2011. Pursuant to the Decree Law, the
Authority is the only body authorised to publish accounting and auditing standards in
Turkey.
Accounting standards and statutory audit
According to the new TCC, companies are obliged to maintain statutory books and individual
or consolidated financial statements in accordance with Turkish Accounting Standards and
Turkish Financial Reporting Standards (TAS/TFRS), a direct translation of the International
Financial Reporting Standards (IFRS).
However, the KGK has decided that for accounting periods beginning on or after 1 January
2013, the following companies must use TAS/TFRS to prepare individual or consolidated
financial statements:
•• Companies specified in Decree No. 660 as organisations of public interest
ompanies subject to statutory audit by the decision of the Council of Ministers within
C
the framework of the new TCC, Article 397
• Companies listed in the second paragraph of the new TCC, Article 1534.
According to Law No. 6455 (amending the new TCC), all joint stock companies not covered
by the above list, cooperatives under Law No. 4572, and their parent organisations that
are not subject to audit will be audited. Supervisory rules and procedures of the audit
regulations will be issued by the Ministry of Customs and Trade after consultation with the
KGK. Pending more specific instructions from the KGK, other companies should continue to
use the Uniform Chart of Accounts in accordance with Turkish tax laws.
Companies meeting at least two of the following criteria by the end of 2014 (alone or
together with their affiliates and/or subsidiaries) are subject to statutory audit for 2015:
•• Total assets ≥ TRY 50 million
Annual net sales ≥ TRY 100 million
• Number of employees ≥200.
In case of at least two of three criteria mentioned in above decision consecutively exceed
their limits in two accounting period, and then the companies will be subject to statutory
audit from the subsequent accounting period.
As to the determination of whether these criteria are met for current year, the financial
statements for last 2 years shall be taken into account regarding total assets and annual net
16 Bilgener Istanbul Sworn-in CPA Incsales revenue. Average number of employees for past 2 years shall be taken into account
regarding the number of employees.
According to List No. I of the Article 397 Public Oversight Accounting and Auditing Standards
Authority’s Organization and Responsibilities Decree Law No. 660, the following companies
are also subject to statutory audit:
•• Companies under control of Capital Markets Board of Turkey regulations
Companies under control of Banking Regulation and Supervision Agency regulations
• I nsurance, reinsurance and pension companies that are regulated by the law of
individual retirement savings and investment plan and law of insurance
• I nstitutions authorised by the Istanbul Gold Exchange and allowed to operate as a
member; precious metals intermediary institutions; joint-stock companies engaged in
the production or trade of precious metals
• ompanies licensed for warehousing of agricultural products established as a joint-stock
C
company according to legislation on licensed warehousing of agricultural products
• ompanies established as a joint-stock company in accordance with provisions of the
C
law of public malls
• Media companies that are owners of national terrestrial satellite and cable television.
Statutory books
Financial records in statutory books (see Table 4) must be kept in the Turkish language,
although additional records may be kept in other languages.
TRY is used as the currency in statutory books, although records can be kept in foreign
currency as long as the TRY equivalent is shown. It is not compulsory to show the TRY
equivalent on documents issued to customers abroad.
The Council of Ministers is authorised to decide whether to allow book-keeping with
currencies other than TRY for establishments with ≥40% of capital owned by bodies without
a legal residence, headquarter or business place in Turkey and with a paid-up capital of US$
≥100 million or equivalent TRY at the related book certification date. Transactions in TRY are
converted to foreign currency according to the buying rate announced by Central Bank of
Turkey for the date of the relevant transaction.
Table 4. Statutory books required to be kept by joint stock and limited liability companies.
Joint stock company Limited liability company
Journal Ledger Journal Ledger
Inventory Ledger Inventory Ledger
General Ledger General Ledger
Share Book Share Book
Board of Decision Book Annual General Meeting Book
Annual General Meeting Book
www.bilgeneristanbul.com 17The opening and year-end closing of statutory books must be authenticated by a public
notary.
Accounting records of statutory books such as the Journal Ledger, Inventory Ledger and
General Ledger must be retained for 5 years following the relevant accounting period
according to Turkish tax procedural law and for a period of 10 years in order to comply with
the New Turkish Commercial Code and Social Security System.
18 Bilgener Istanbul Sworn-in CPA IncTaxation
According to Turkish Corporate Tax Law No. 5520, the Turkish direct taxation system consists
of two main taxes on income and earnings: income tax (for individuals) and corporate tax (for
companies).
Income tax
Income tax is taken from the net total of income earned by any individual (real person) in a
calendar year. An individual’s income may consist of one or more income elements such as
business profits, agricultural profits, salaries and wages, income from independent personal
services, income from immovable property and rights (rental income), income from movable
property (capital investment), or other income and earnings regardless of source.
A general residency criterion is employed in determining tax liability for individuals. This
criterion requires that an individual whose place of residence is in Turkey must pay tax
on their worldwide income (unlimited liability). Any person who remains in Turkey for
>6 months in a calendar year is assumed to be a resident of Turkey. However, foreigners
who stay in Turkey for ≥6 months for a specific job or business, or for particular purposes
specified in the Income Tax Law, are not treated as resident and are not subject to unlimited
tax liability. Non-residents are only liable to pay tax on income derived from sources in Turkey
(limited liability).
Income tax is a progressive tax; rates vary from 15% to 35% (see Table 5).
Table 5. Income tax rates applicable to yearly gross earnings from 2015.
Income scales (TRY) Tax rate
≤ 12,000 TRY 15%
From 12,000 TRY till 29,000 TRY is (For wages 12,000 TRY is 1,800 TRY) 20%
From 29,000 TRY till 106,000 TRY is (For wages 29,000 TRY is 5.200 TRY) 27%
> 106,000 TRY is (For wages 106,000 TRY is 25,990 TRY) 35%
> 66,000 TRY is (For other income 66,000 TRY is 15,190 TRY)* 35%
*106.000 TRY upper limit is applicable only for the taxation of wage income. For other sources of income, 2015 taxation upper
limit is 66.000 TRY.
Corporate tax
Corporate tax is levied on the income and earnings of capital companies and similar foreign
companies, cooperatives, public enterprises, and enterprises owned by foundations, societies
and associations and joint ventures.
If the company’s legal head office, or the place of effective management, is situated in Turkey,
then the company is taxed on its worldwide income (unlimited tax liability). If the company’s
legal head office and place of effective management are abroad, then it is taxed only the
income derived in Turkey (limited tax liability).
www.bilgeneristanbul.com 19Determination of net taxable income
Net corporate income is defined as the difference between the net worth of assets owned at
the beginning and at the end of the fiscal year.
In determining net business profit, expenses such as those listed below may be deducted
from revenue:
• General expenses made for earning and maintaining business profit
• F ood and boarding expenses provided for employees at the place of business or in its
annexes
• Expenses for medical treatment and medicine
• Insurance and pension premiums
• Clothing expenses paid for employees
• Expenses for travel and lodging relevant to the business
• Expenses for vehicles that are part of the enterprise and used in the business
• Taxes in kind such as building, and consumption
• Stamp and municipal taxes and fees and charges related to the business
• L osses, damages, and indemnities paid based upon written agreements, juridical
decrees, or by order of law
• Depreciations set aside according to the provisions of the Tax Procedure Law
• Payments to the unions
• Expenses related to the issuance of stocks and shares
• Initial organisation and establishment expenses
• Expenses incurred for general board meeting
• Expenses made for mergers dissolutions, and liquidations
• I n case of insurance companies, technical reserves required for the insurance contracts
still valid at date of inventory
• rofits shares accrued to active partners of partnerships in commendams limited by
P
shares
• Profit shares accrued to partners by participation banks for participation accounts
• esearch and development deductions calclated as 40% of new technology and know-
R
how research expenses realised within business.
In determining net corporate income, deductions such as those listed below are not allowed:
• Interest paid or accrued on the basis of equity, interest or exchange differences
20 Bilgener Istanbul Sworn-in CPA Inc• Other costs paid or accrued on the basis of disguised capital
• Disguised earnings distributed by transfer pricing
• Any kind of reserves
• Corporate tax, fines, tax penalties
• Late payment penalties and interest
• Depreciation of leased or registered motor vehicles
• Other expenses not related to business activities.
Exceptions
The following earnings of corporations are exempted from corporate tax:
a. Dividend income from other Turkish companies
b. ividend income from foreign subsidiaries or branches when certain conditions fulfilled
D
(minimum 10 % of participation and holding minimum 1 year)
c. 5% of the capital gains from disposal of share certificate and immovable properties that
7
are held over 2 years
d. Earnings of the following funds and companies that are established in Turkey:
• Portfolio management earnings of investment funds/companies
• Real estate investment funds/companies
• Venture capital funds/companies
• Pension funds
e.
• Housing financial funds and assets financing funds.
Income from construction, restoration assembly and technical services completed
abroad
f. I ncome through selling companies rights or shares which are issued by A.S. companies
over nominal prices
g. 00% of research and development expenditures for new technology and information
1
development.
Corporate tax return
Like income tax, corporate tax is assessed on the basis of annual tax returns. In principle,
each taxpayer is required to file only one tax return – even if income was derived through
various business places or branches, which may have their own accounting and allocated
capital.
www.bilgeneristanbul.com 21The corporate tax return is filed until the 25th evening of the fourth month of the year
following the month in which the fiscal year ends, and the assessed taxes are paid until the
end of that month. However, if a limited-liable taxpayer leaves the country for good, the
corporate tax return must be submitted to the authorised tax office in the 15 days preceding
their departure from Turkey. In such a case, declaration is made and taxes are paid at the
same period.
Tax rates
Corporate income tax is applied at a 20% rate on the corporate earnings. Taxpayers pay
provisional tax at the rate of corporate tax; these payments are deducted from corporate tax
of current period. Any excess payment of advance corporate tax is refunded or used to offset
from other tax liabilities.
Dividends
Dividends distributed to individuals and non-resident corporations which have interest in
Turkish companies are subject to withholding tax at 15%. Non-resident shareholders can
benefit from reduced withholding tax on dividends if they qualify to benefit from double
taxation treaty provisions that prevail for a lower withholding tax than 15%. Dividend
distributions to Turkish resident companies are not subject to withholding tax.
Tax losses
Tax losses (including foreign source losses, but subject to certain procedures) can be carried
forward for 5 years as long as they have been shown in corporate tax returns separately for
each year, but they are not carried back except in the case of liquidation.
Reimbursement of taxes paid abroad
Turkey has signed mutual agreements with 77 countries to generate a global network for
double taxation relief. Generally, to qualify for tax relief, companies must fulfil their tax
duties within the country where income and profit is gained; then, provided the necessary
documentation is supplied, a refund can be issued.
Transfer pricing
Transfer pricing regulations are adopted from traditional transfer pricing methods
described in the OECD Model Transfer Pricing Guideline. Transfer pricing rules apply when
the transaction between related parties (both resident and non-resident) are not defined
in accordance with arm’s-length pricing. If profits arise from disguised profit distribution
through transfer pricing, then the profit is subject to both corporate tax and dividend tax.
Different methods are defined in corporate tax law in line with the methods described in
the OECD’s transfer pricing guideline, such as comparable uncontrolled price, cost plus
and resale price methods. Taxpayers are required to choose the most appropriate method
to calculate transfer pricing based on arm’s-length price. Adequate documentation to
22 Bilgener Istanbul Sworn-in CPA Incdemonstrate the chosen transfer pricing method must be provided to the tax office along
with the annual corporate tax return.
Thin capitalisation
When the ratio of borrowings from shareholders or related parties to the shareholders
exceeds three times the shareholder’s equity of the borrower company at any time within
the relevant year, the excess part of the borrowings will be considered as ‘thin capital’. If the
borrowing is taken from related party banks or financial institutions, then it is considered
thin capital after the amount of borrowings exceeds six times the shareholder’s equity.
The related party is defined as a person or business entity that has direct and indirect
shareholding of ≥10% of shares or vote/dividend rights. The amount of equity is determined
at the beginning of the accounting period and considered as equity for thin capitalisation
purposes.
Except for the foreign exchange differences, interest paid over an excess debt/equity ratio
is considered as dividend distributed and will be subject to 15% dividend withholding tax.
Related expenses, foreign exchange losses and interest payments exceeding the debt/equity
ratio are considered as non-deductible expenses.
Value added tax (VAT)
The Turkish tax system levies VAT on the supply and importation of goods and services.
Liability for VAT arises when a person or entity performs commercial, industrial, agricultural
or independent professional activities within Turkey, or when goods or services are imported
into Turkey.
The Turkish VAT system employs multiple rates, which the Council of Ministers is authorised
to change within certain limits; the standard rate is set at 18%. Services mentioned in List
No. I of are subject to 1% VAT; those mentioned in List No. II (e.g. basic food stuffs, health,
textile, tourism, culture and education) are subject to 8% VAT.
Taxable base
The taxable base of a transaction is generally the total value of the consideration received;
this does not include the VAT itself or any discounts, provided that they are at a reasonable
rate with regard to commercial practice and are explicitly listed in all invoices or similar
documents.
Reverse charge VAT
In the event that the taxpayer is not resident or has no place of business in Turkey, the
Ministry of Finance is authorised to hold any one of the people involved in a taxable
transaction responsible for the payment of tax – known as a ‘reverse charge’ VAT mechanism.
This requires the calculation of VAT by resident companies on payments abroad. Under this
mechanism, VAT is calculated and paid to the related tax office by the Turkish company or
www.bilgeneristanbul.com 23customers on behalf of the non-resident company (foreign company); the local company
treats this as input VAT and offsets it in the same month.
The credit mechanism of VAT
VAT is collected at every stage of the production and distribution process, from the initial sale
by the producer to the final sale to the consumer. At each stage, the amount of tax payable
is the difference between the total amount of tax charged on the invoices issued by the
taxpayer and the total amount of tax charged on invoices issued to the taxpayer during the
same period. Thus the VAT is initially computed by applying the appropriate rate of taxation
to the taxable base for goods and services supplied by the taxpayer during a taxable period.
This amount is then reduced by a credit for VAT previously paid on importation and on goods
and services supplied to the taxpayer.
VAT refund
Input VAT shown on invoices and similar documents related to the transactions that are
exempt – such as exportation of goods and services; exemption for vehicles, petroleum
exploration and investments made under an investment incentive certificate; transit
transportation; or diplomatic exemptions – are deducted from output VAT to be calculated
on the transactions of the taxpayer that are subject to VAT.
In the absence of transactions subject to VAT, or if the output VAT is less than the input
VAT, then the input VAT that cannot be deducted is refunded to those who perform such
transactions, on the basis of principles to be determined by the Ministry of Finance.
Stamp tax
Stamp tax applies to a wide range of documents, including (but not limited to) contracts,
agreements, notes payable, letters of credit and letters of guarantee, financial statements
and payrolls.
Stamp duty is levied as a percentage of the value stated on the document. For 2015, stamp
tax rates range from 0.189% to 0.948%. The Stamp Tax Law provides that each relevant party
shall be responsible for payment of the total amount of stamp tax on the agreements. Each
original document is separately subject to stamp tax.
Banking and insurance transactions tax
The subject of this tax is transactions and services produced by banks, bankers and insurance
companies. Taxpayers are banks, insurance companies and bankers. Banks and insurance
companies are exempt from VAT; instead, they are subject to banking and insurance
transactions tax at a rate of 5%, which is due on the gains of such companies from their
transactions for each month of the calendar year. Taxpayers declare their taxable transactions
up to the evening of the 15th day of the following month.
24 Bilgener Istanbul Sworn-in CPA IncSpecial consumption tax
Goods in the lists attached to the Special Consumption Tax Law are the subject of this
tax, which is charged only once. Four main product groups that are subject to special
consumption tax at different tax rates:
• L ist I is related to petroleum products, natural gas, lubricating oil, solvents and
derivatives of solvents. Taxpayers are manufacturers and importers of petroleum
products
• L ist II is related to automobiles and other vehicles, motorcycles, planes, helicopters and
yachts. Taxpayers are merchants of motor vehicles, exporters for using or sellers through
auction
• L ist III is related to tobacco and tobacco products, alcoholic beverages and cola.
Taxpayers are manufacturers, exporters or sellers through auction of tobacco, alcoholic
beverages and cola
• L ist IV is related to luxury products. Taxpayers are manufacturers, exporters or sellers
through auction of luxury products.
Custom duty
Goods imported from abroad are the subject of this tax. Taxable events are free circulation
of goods, registration of customs declaration, and temporary importation in case of partial
exemption. The taxpayer is principally the person who declares goods to the customs office.
Customs duties are assessed on written declaration by the taxpayer and paid within 10 days
of the customs declaration.
Resource Utilisation Support Fund (RUSF)
Even if it does not have the word ‘tax’ in its name, RUSF is a kind of tax taken from specific
imports and foreign exchange or gold loans obtained from abroad.
The Council of Ministers Resolution no. 2012/4116, which has made amendments to various
tax rates, was promulgated in the Official Gazette dated 1 January 2013. Article 11 introduces
new RUSF rates for foreign exchange and gold loans obtained from abroad by entities other
than banks and financing companies, narrowing the scope of exemption (see Table 6).
Table 6. RUSF tax rate according to maturity period.
Maturity period Tax rate
3 years 0%
www.bilgeneristanbul.com 25On the other hand, no amendment has taken place with regard to the TRY denominated
loans obtained from non-resident entities. Accordingly, RUSF at 3% is due on interest paid
on all TRY denominated loans borrowed from non-resident parties (i.e. regardless of the
maturity period of the loan).
Taxes on wealth
There are three types of taxes on wealth: property tax, inheritance and gift tax, and motor
vehicle tax.
Property tax
Property tax is paid each year on the tax values of land and buildings. In the case of the sale
of a property, a levy is paid on the sales value by both the buyer and the seller. Property tax
returns are filed every 4 years and annual taxes are paid in two equal instalments – the first in
March, April or May and the second in November.
Inheritance and gift tax
Items acquired as gifts or through inheritance are subject to a progressive tax rate,
respectively, of the item’s appraised value. Tax paid in a foreign country on inherited property
is deducted from the taxable value of the asset. Inheritance and gift tax is payable in
biannual instalments over a period of 3 years.
Motor vehicle tax
Taxpayers are real and legal persons who have motor vehicles that are registered to their
own names in the traffic, municipality and docks register and the civilian air-vehicle register
maintained by the Ministry of Transportation. The amount of motor vehicle tax for land
transportation vehicles is determined according to their weight, age, cylinder capacity
and the fuel used. Tax is assessed and accrued annually at the beginning of January. Motor
vehicle tax is paid in two equal instalments, in January and July, every year.
Withholding tax
Under the Turkish tax system, certain taxes are collected through withholding by the payers
in order to secure the collection of taxes:
• Income tax on salaries of employees
• Lease payments to individual landlords
• Independent professional service fee payments to resident individuals
• Royalty, licence and service fee payments to non-residents.
Companies are responsible for withholding such taxes on their payments and must declare
them through their withholding tax returns.
26 Bilgener Istanbul Sworn-in CPA IncInterest
Withholding tax rates to apply on the interest income of a non-resident company are:
• I nterest on foreign loans obtained from foreign banks and other financial
institutions = 0%
• Interest on foreign loans from non-financial institutions = 10%
• Interest on Turkish government papers = 0%
• Interest on foreign currency bank deposits = 18%
• Interest on TRY bank accounts = 15%
• Interest on repossession transactions = 15%.
Royalties and fees
Non-resident companies receiving licence, know-how and technical assistance payments are
taxed through withholding taxes, which apply to fee payments at the following rates:
• Royalty and service payments to foreign licensers = 20%
• Rental fees to non-residents = 20%
• Technical service fees = 20%
• Other service fees = 20%
• Oil exploration services = 5%
• Financial leasing fees = 1%.
Social security tax
Salary payments are subject to withholding tax at a source of relevant progressive rates,
which range from 15% to 35%. Social security premiums are calculated as a percentage
of gross salary and are payable at premiums of 14% for the employee and 20.5% for the
employer. There is also an unemployment contribution, with premiums of 1% for employee
and 2% for the employer.
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